By George Benaur and Ben A. Rozenshteyn
The business of asset recovery, litigation and arbitration is growing, especially with the infusion of private equity capital into these realms. Litigations and asset recovery cases have become investment vehicles for some companies and funds. Commercial fights in the courts and arbitration forums are taking place worldwide and resulting in multimillion-dollar judgments for companies and individuals. In the world of international trade and business litigation, however, it is often not sufficient to obtain a judgment against another; the challenge often presents itself at the enforcement stage. Here, we discuss effective avenues, practical considerations and potential hurdles in enforcing foreign judgments in U.S. courts.
How to Enforce a Judgment in the U.S.
Whether to go into U.S. courts to pursue a judgment debtor of course depends on whether the debtor or its assets are somehow present or tied to the U.S. jurisdiction. The answer to this question is not always straightforward. It oftentimes requires an in-depth analysis of the debtor’s assets, including potential use of alias names, corporate nominees, alternate shells used for companies, and other methods used by fraudulent debtors to escape obligations to their creditors. The U.S. legal system provides several potential avenues for both enforcing judgments and taking discovery on assets, and even obtaining “freezing orders” in certain unique circumstances, but each step requires careful analysis and planning.
As an initial matter, the U.S. is a party to multilateral conventions that apply to enforcement of foreign arbitration awards, but not foreign Court judgments. Rather, recognition and enforcement of judgments is governed by individual state laws. Even if a judgment domestication case is brought before a federal Court, that Court will apply relevant state law in reaching its decision.
Most states have adopted the Uniform Foreign Money-Judgments Recognition Act (1962 adopted by a majority of states, and 2005 revision adopted by a minority of states) (UFMJRA), (Act). The UFMJRA provides a standard framework for Courts to recognize and enforce foreign money judgments. States that have not adopted the UFMJRA (either in its original or amended form), generally recognize foreign judgments under common law and comity principles. Likewise, non-money judgments, such as those for injunctive relief, may also be recognized under certain state laws. Foreign arbitral awards are not covered by the Act. At the same time, a judgment of a foreign Court confirming or setting aside an arbitral award is covered by the Act.
State or Federal Court?
State courts have general jurisdiction and are presumed to have subject matter jurisdiction over a case. Federal Courts are of “limited jurisdiction” thus can hear recognition and enforcement actions under either diversity of citizenship jurisdiction, or federal question jurisdiction. Jurisdiction may be denied if there is no federal question involved, or if the creditor and debtor are not “diverse” and if the monetary judgment at issue does not meet the $75,000 threshold. In the international trade setting, it is often the case that there is “diversity” for purposes of federal jurisdiction. It is important to point out that the federal and state courts alike will analyze whether they have sufficient jurisdiction over the defendant debtor so the answer to this question – i.e. what is the basis for jurisdiction – will have to be ready before filing.
In states that have adopted the UFMJRA, a foreign judgment granting or denying recovery of money will be recognized only if the judgment is
(2) conclusive; and
(3) enforceable where rendered.
Notably, a pending appeal proceeding does not necessarily mean that a judgment is unenforceable where rendered. A U.S. Court may, however, stay the US enforcement proceeding pending the decision in the foreign appeal proceeding. In certain situations, answering the question of finality may require the expert opinions of foreign law practitioners, which could slow down enforcement.
Under the UFMJRA, the Court cannot recognize the foreign judgment if the foreign Court;
(1) was not impartial;
(2) did not offer due process of law; or
(3) did not have personal jurisdiction over the defendant.
The judgment holder must prove that each of these requirements are met. In addition, the UFMJRA provides that a foreign money judgment “need not be recognized” if any of the following is true:
(a) the defendant in the proceedings in the foreign Court did not receive notice of the proceedings in sufficient time to enable him to defend;
(b) the judgment was obtained by fraud;
(c) the cause of action on which the judgment is based is repugnant to the public policy of the recognizing state;
(d) the judgment conflicts with another final and conclusive judgment;
(e) the proceeding in the foreign Court was contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that Court; or
(f) in the case of jurisdiction based only on personal service, the foreign Court was a seriously inconvenient forum for the trial of the action. As of 2019, Florida, Idaho, Maine, North Carolina, Ohio, and Texas make reciprocity a ground for discretionary refusal to recognize or enforce a foreign country judgment.
Clearly, these points provide different options for challenging the enforcement of the judgment. Whether the debtor defendant will do that or not – i.e. fight enforcement – depends on the circumstances. Are he or she hiding, for example, or not? Do they have sufficient resources to pay the legal fees?
Just as there is variety in states’ adoption of the UFMJRA, so too does each state have its own procedural rules for domesticating a judgment. In most states, a creditor is required to commence a new action in the relevant Court to obtain jurisdiction over the U.S. defendant (debtor) and/or their property. In our experience, often a motion for summary judgment, rather than a full-fledged complaint, is a more efficient way of commencing the action (when sufficient). In order to establish the authenticity and therefore the validity of the judgment to be domesticated, a U.S. Court will likely demand a translated and certified (exemplified) copy of the judgment from the Court that issued it. It can be obtained through the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, or if the nation is not a party to it, then through consular means. Typically, this can be organized through coordination between the U.S. attorney and the attorney from the jurisdiction of judgment origin. Finally, notice of the recognition and enforcement proceeding must be properly served on the defendant (debtor), so as to provide their due process opportunity to be heard (these sorts of actions are not ex parte). If the foreign judgment meets the state standards for recognition, as principally set forth above, the U.S. Court will convert the foreign judgment into an enforceable domestic one.
New York’s Peculiarities
All of the grounds for recognition of foreign country money judgments in New York are contained within the Civil Practice Law and Rules (CPLR) 5301 through 5309, which adopts the UFMJRA. To date, New York has found that UFMJRA’s standards are usually met in judgments rendered by Canadian, Mexican, English, Bermudian, Japanese, Indian, Korean, Brazilian, French, German, Swiss, Italian, Hong Kong, Belgian, Dutch, Spanish, Swedish, Danish, Romanian and most other Courts from developed nations. Conversely, Liberian, Iranian and Ecuadorian judgments ordinarily fail to meet UFMJRA’s requirements.
Notably, as in most jurisdictions, there is a slight complication if the foreign judgment sought to be enforced was obtained as a result of default. To obtain recognition of a default foreign judgment:
- A new suit must be brought on the underlying judgment.
- An affidavit and a certificate of conformity, properly executed, need to be made part of the judgment roll. The certificate of conformity contains information that assures the Court that the notarization conforms with the law in the state where the Affidavit was signed.
- An exemplified copy (valid for 90 days) of the foreign judgment (referenced above).
- A disclosure of procedural history must be attached.
- The Court may require proof the process service validity, as well as the corresponding local statute.
Once all the hurdles are passed, New York affords the judgment creditor a “unique” and “remarkable” device contained within CPLR 5222 and coined the “Restraining Notice.” It serves as a judgment enforcement device under which a judgment creditor may restrain bank accounts or other personal property or debts owed to a judgment debtor. The tool is not limited to freezing accounts or property held in the judgment debtor’s own name. A judgment creditor may use a Restraining Notice to reach and restrain funds in an account that’s held in the name of another party without having to first prevail in a fraudulent conveyance proceeding, provided there is evidence that the account contains assets of the judgment debtor, such as fraudulently transferred property or where the debtor has deposited his own funds into the account of a third party (Bernard D’Orazio, Using a CPLR 5222 Restraining Notice to Freeze Fraudulently Transferred Assets, New York Law Journal(2018)).
Recent Caselaw and Notable Experience
Late last year, the Pennsylvania Superior Court ruled that a praecipe (a common law order requesting a writ) to enter a foreign money judgment is sufficient for the judgment to be domesticated. In Eclipse Liquidity v. Geden Holdings, WL 6427186 (2018), a three-judge panel upheld a denial of defendant Geden Holdings’ motion to strike a nearly $3.5 million judgment entered against it in the UK. In dicta, the Court emphasized that it did “not find that principles of due process are offended by placing the burden on appellant to raise grounds for nonrecognition of the foreign judgment, including any procedural deficiency of the foreign proceedings, in a petition to open or strike the judgment after it has been domesticated in the commonwealth.” In effect, the holding provides more certainty by making the judgment “domestication” stage more procedural and less adversarial in nature.
Similarly, last year, a Russian bank succeeded in its bid to domesticate and enforce two Meshchansky District Court of Moscow’s money judgments entered in its favor, awarding the bank the total sum of RUB 2.25 billion, or approximately $37 million in January 2017.
Justice Sherwood of the New York County Commercial Division issued a decision in VTB Bank v. Mavlyanov, WL 623530 (2018), entering an order enforcing a Russian judgment with interest. In dicta, the court stressed that “Russian judgments are money judgments that are final, conclusive and enforceable under Russian law… upon expiration of the time within which an appeal may be filed, if no appeal was filed. If an appeal is filed, and the judgment is upheld, the judgment becomes final and enforceable immediately upon issuance of the ruling.”
When it comes to cross-border marital disputes, Benaur Law served as counsel for Mr. Chigirinskiy in defending against his former wife Tatiana Panchenkova’s attempts to enforce a Russian Court judgment against him. The Connecticut action, Panchenkova v. Chigirinsky ,WL 7760847 (2013), was brought under the UFMJRA, seeking recognition and enforcement of a July 3, 2009 judgment rendered in connection with the division of marital property following the parties’ April 2009 divorce. The Russian Court awarded Ms. Panchenkova RUB 354.7 million, but the defense contended that this judgment was procured by fraud. The litigation over the matter lasted for almost five years, with scores of depositions and document discovery over the matter, and countless corresponding court filings, and indeed various other parallel litigations in other courts, until resolved through settlement.
The world of judgment enforcement and asset recovery has seen major developments in recent years, especially within the realm of the funding options available to victims and those pursuing their claims. Although this is a cause to rejoice for those seeking to recover assets, it also means that anyone who considers “getting what they’re owed” is best advised to be scrupulous. Assembling the best possible team, that which is well-versed and hardened by navigating the mélange of state laws and procedural peculiarities, could very well be the difference between full recovery and utter futility. With conventional asset recovery teams working on an hourly basis and risking burdening the claimant with spiraling legal costs, we have observed a booming business in third party funders and hedge funds acquiring parts or even entire causes of action. Regardless of whether the claim is thereafter pursued on an hourly, contingency, or assignment basis, the U.S. provides prospective litigants unique and effective tools to enforce their claims.